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Dow Falls 200 Points As Wall Street Worries Over ‘Opposition’ To Biden’s $1.9 Trillion Stimulus Plan—And Higher Taxes

Topline

Stocks are on track to end the week in the red despite big bank beats revving up the fourth-quarter earnings season as investors increasingly worry over the pandemic’s worsening domestic outlook and the likelihood that President-elect Joe Biden’s ambitious new stimulus plan will ultimately become law.

Key Facts

Shortly after the market open, the Dow Jones industrial average had fallen 155 points, or 0.5%, and the S&P 500 shed 0.3%, while the tech-heavy Nasdaq was virtually flat.

Massive fourth-quarter earnings beats by JPMorgan Chase, Wells Fargo and Citigroup on Friday morning were largely driven by reserve releases (meaning cash no longer kept on hand to meet Federal Reserve requirements) amid heightened optimism over the economic recovery.

That wasn’t enough to impress investors, and shares of the three big banks are down 2.5%, 5% and 2%, respectively, with JPMorgan’s CFO noting that the next three to six months will be “critically important” to assess the strength of the recovery as Covid-19 cases climb to new highs domestically.

Among the worst performers in the S&P Friday, shares of Exxon Mobil fell 4% after the Wall Street Journal reported that the Securities and Exchange Commission is investigating the oil giant for overstating the value of a key asset in the Permian Basin.

Meanwhile, retail sales fell for the third straight month in December, totaling approximately $541 billion, nearly 1% less than spending in November, according to data released by the U.S. Census Bureau Friday morning.

Global markets were mixed Friday, with Japan’s Nikkei 225 closing down 0.6%, while Germany’s DAX index has fallen 0.9%, but France’s CAC 40 is up 0.3%.

Tangent

Dating app Bumble publicly filed its prospectus on Friday for an initial public offering that could come as soon as this quarter, revealing revenue of $416.6 million in the first nine months of 2020, compared to $362.6 million for the comparable period in 2019. The firm is reportedly seeking a valuation of at least $6 billion.

Surprising Fact

After climbing 7% last year, the Dow has ticked up 1.3% in the first two weeks of 2021. The index hit an intraday high Thursday, but its latest peak at the close was last Friday. That’s also when the S&P, which is up 1% this year, last hit a record close. 

Key Background

On Thursday, Biden released details of his $1.9 trillion stimulus proposal—dubbed the “American Rescue Plan.” The lofty plan includes larger stimulus checks that would increase the latest payments from $600 to $2,000, expanded federal unemployment benefits at $400 per week through September, a major expansion of the child tax credit and $350 billion in state and local aid. Its prospects in Congress, however, are uncertain, given Democrats’ razor-thin voter advantage. Congress has already authorized some $3.5 trillion in stimulus spending over the course of five relief bills, including the latest package in late December, and many lawmakers have been hesitant to spend much more. 

Crucial Quote 

“It isn’t so much that markets are bullish or bearish on Biden’s proposal, but reality is sinking in, and, for a variety of reasons, investors are tempering some of their enthusiasm,” Vital Knowledge Media founder Adam Crisafulli said Friday morning. “The plan will run into a buzzsaw of opposition from both Democrats and Republicans, and the Senate has a busy agenda with the Trump impeachment trial and Biden cabinet confirmations, which could delay consideration of stimulus for weeks.”

What To Watch For

President-elect Biden is expected to unveil another stimulus proposal as soon as February to tack on to the rescue package released Thursday. That plan is “very likely” to include tax hikes–something investors are starting to worry about, Crisafulli noted Friday.

Further Reading

Biden Set To Unveil $1.9 Trillion Stimulus Plan To Control Covid-19 And Rescue The Economy (Forbes)

JPMorgan Posts Record $12.1 Billion Profit–Shattering Expectations Despite Pandemic Highs (Forbes)

Fed Chair Powell Warns Of ‘Exuberant’ Spending And Price Spikes After Pandemic But Isn’t Worried About Long-Term Inflation (Forbes)

Dow Jumps 100 Points And BlackRock, Delta Beat Profit Expectations Amid Worsening Jobs Data (Forbes)

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